The Oscars are to remain in Hollywood for the next 20 years at the newly renamed Dolby theatre.

The Academy of Motion Picture Arts and Sciences, which organises the annual film awards, had briefly considered shifting to a new venue away from the district which is synonymous with US movie glitz and glamour, according to the LA Times. The situation was compounded earlier this year when the iconic Kodak theatre in the plush Hollywood & Highland complex on Hollywood Boulevard lost its sponsorship deal when the camera film company filed for bankruptcy. The 3,400-seat auditorium, which has hosted the Oscars for 10 years and cost $94m when it was built in 2001, will now be known as the Dolby theatre for the next two decades.

Academy president Tom Sherak said the board had voted unanimously to stay in Tinseltown. "The board wanted to be in Hollywood," he said. "It didn't matter what the deal was, the board wanted to be there." It is understood the Academy was courted by the larger 7,100-seat Nokia theatre, which is in a less central, less congested part of LA and hosts the Emmy awards and the American Music awards, but opted to stay put. Financial details were not disclosed, but Kodak was previously paying $3.6m annually for naming rights.

The Academy also had approval over the Dolby deal, though it was set up separately by the owners of the auditorium, the CIM group. "We are thrilled that Dolby is now the name of the theatre because Dolby stands for excellence," said Sherak. "It's a no-brainer for us." The auditorium will now be kitted out with the latest Dolby audio technology from this summer, when the name change goes through. A statement from Dolby detailed the steps the company would take to "create a world-class showcase for Dolby's current and future technologies, beginning with the company's revolutionary new Dolby Atmos sound technology released last week".

The contract is good timing for Dolby as it prepares to reveal its new audio system for cinemas, which is designed to deliver a more "immersive" experience. New Zealand film-maker Peter Jackson said he was considering using Atmos for The Hobbit, his forthcoming two-part prequel to fantasy epic The Lord of the Rings.

"Dolby are coming down to New Zealand to give us a demonstration," Jackson told the Hollywood Reporter. "Our particular post-production schedule is reasonably tight [but] three dimensional sound would be fantastic. If we can do it I would be pretty keen."